A sandbox is a commonly deployed term in the fintech universe, referring to a mechanism for developing regulation that keeps up with the fast pace of innovation.
In scope of the computer science world, a sandbox is also associated with a closed testing environment that designed for experimenting safely with web or software projects.
Sandboxes are very important to the regulatory field, though is also utilized within the digital economy space.
The first regulatory sandbox was launched in the United Kingdom in 2015 and generated great interest from regulators and innovators around the world.
For example, these constructs are useful testing grounds for new business models that are not protected by current regulation, or supervised by regulatory institutions.
How are Sandboxes Used?
In terms of fintech, the collision between new technology expanding boundaries and the regulation needed to police it is an important interaction that has evolved over time.
In the fintech space, there is a growing need to develop regulatory frameworks for emerging business models in particular.
Overall, the purpose of the sandbox is to adapt compliance with strict financial regulations to the growth and pace of the most innovative companies.
Crucially, this needs to happen in a way that doesn’t smother the fintech sector with rules, but also doesn’t diminish consumer protection.
A regulatory sandbox should aim to bring down the cost of innovation down, while also reducing the barriers to entry, and allowing regulators to collect important insights before deciding if further regulatory action is necessary.
A successful test may result in several outcomes, including full-fledged or tailored authorization of the innovation, changes in regulation, or a cease-and- desist order.
